The Case of a Five Star Performer on the Horizon of Lake Michigan

Want to hear a rare tale of a high performing bank trading at a bargain price? After 12 straight years of record earnings and greater than 17% return on equity, Horizon's current price is barely above book value, even after rising five points in the past month. Given how much and for how long Horizon has been outshining its peers, I think at twice book it would still leave room for a nice return.

Disclosure: As of this posting, I own significant shares of HBNC and a 13-D filing position in acquisition target HRTB, and may subsequently either dispose of them or purchase more.

Prospective Buyers

In my opinion, Horizon shareholders are best served under the current leadership of Messrs Dwight and Edwards. However, it's comforting to know that the bank would be a great target for many companies, including:

Fifth Third, Cincinnati, OH (FITB)

Wells Fargo, San Francisco, CA (WFC)

Financial Snapshot(as of 3/31/2012)

Total assets:

$1.5B

Tangible book value per share:

$21.35

NPAs to assets:

1.4%

Price to book:

110%

Market cap:

$125M

Dividend yield:

2.1%

Trailing 12-month return on assets:

1%

Trailing 12-month return on equity:

12%

Luminaries

Robert Dabagia, Chairman

Craig Dwight, CEO

Thomas Edwards, President, COO

Gold Stars

Horizon was recently named one of just 45 banks on the Keefe, Bruyette & Woods Honor Roll of top performing banks in the country.

Horizon's earnings grew by 58%, from $8.1M in 2007 to $12.8M in 2011, navigating through the Great Recession with flying colors.

Q1 2012 performance measures show even greater profitability—a 1.2% return on assets, 14.7% return on equity, and an even more impressive 17.6% return on tangible common equity.

Horizon hasn't experienced a single loss for any quarter for at least the past six years. In contrast, the aggregate earnings of all banks in Indiana and Michigan were a loss in both 2008 and 2009.

The highest level of NPAs to total loans Horizon ever reached in the past five years was 2.4% vs the industry average of nearly 5%.